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Brokers have highlighted several lenders for maintaining more stringent policies during economic setbacks, while others are seen to be implementing positive changes.
In 2023, the Reserve Bank of Australia (RBA) increased the cash rate five times, culminating in a year-end rate of 4.35 per cent.
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Despite intermittent pauses in rate adjustments offering brief respite for borrowers, the cumulative impact of high rates, coupled with the prudential regulator’s 3 per cent serviceability buffer and stringent lending prerequisites, has significantly restricted access to home loan mortgages.
While numerous lenders have reduced their serviceability buffers for eligible borrowers, certain policies continue to pose challenges according to brokers.
Founder of Borro, Cara Giovinazzo, noted significant changes in lending policies over recent years. What previously posed no hurdles for borrowers with robust borrowing capabilities now demands considerably more preparation for clients seeking home loans.
Ms Giovinazzo highlighted discrepancies among lenders’ treatment of various financial commitments.
For instance, while some lenders like Macquarie may disregard private school fees given adequate evidence of savings, others consider these fees as ongoing liabilities, thereby reducing borrowing potential.
Additionally, Ms Giovinazzo emphasised the meticulous scrutiny certain lenders, such as Newcastle Permanent Bank, undertake over a two-month period while examining clients’ bank statements, making the lending process notably more challenging.
Despite her flawless home loan repayment history, she remarked: “If you looked at my bank account right now – no one would ever give me a loan (renovations, Christmas, school holidays, etc).”
She emphasised that most lenders still view private health insurance as a cost beyond HEM, despite clients typically receiving tax incentives. This exclusion further diminishes borrowing capacity.
Moreover, owner-occupied strata fees, although part of HEM costs, are excluded, reducing borrowing potential.
Investment property expenses
Regarding investment property expenses, Ms Giovinazzo highlighted differences among banks.
For instance, NAB and CBA factor in every investment property expense from tax returns, potentially reducing borrowing by $1,000 monthly, even if rent is already considered.
In contrast, some banks may accept a PAYG customer’s estimated monthly expenses outright on “face value”.
Suncorp, on the other hand, disregards investment property expenses due to shaded rent, aiming for a fairer assessment of borrowing capacity, she noted.
“We’re really becoming more creative and doing a lot more upfront work with clients to find them a solution that really does fit their needs,” Ms Giovinazzo said.
“It will continue to make broking a little bit harder.”
Self-employed and business policy setbacks
Founder at Cinch Loans, Suvidh Arora, noted certain setbacks in policies for self-employed individuals.
While some banks like CBA, Bankwest, and TMBL have started considering self-employed clients as salaried employees of their businesses, recognising their regular wage payments, most other lenders continue to base decisions solely on financial records, disregarding the progress of high-growth start-ups.
“ANZ [has] been the leaders in the ‘latest one year financials policy’ for self-employed clients, but, not many others have evolved here and still use the old two-year average method,” he said.
Technology adoption
Mr Arora also highlighted the slow pace of technology adoption within the industry, expressing frustration at lenders’ sluggishness in automating and digitising processes.
“While some lenders like Orde Financial, Macquarie, CBA, NAB, [and] ANZ have been at the forefront of evolving and using digital [IDs], electronic signing to speed up the process from application to settlement, most other lenders still have been very slow,” Mr Arora said.
Additionally, the prudential regulator’s maintenance of the 3 per cent serviceability buffer poses an ongoing challenge to borrowers.
Mr Arora questioned the necessity of this buffer for clients whose repayments are current and who might benefit from refinancing to reduce repayments and improve cash flow.
He acknowledged certain lenders like Pepper Money, CBA, Bankwest, and Westpac that have lowered their buffers for eligible borrowers.
[Related: Broker clients reeling as lender slashes discount rate]
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